The news that online transactions in UK reached nearly £57bn in 2000, - more than 2% of total sales - was hailed by industry figures as encouraging, despite the relatively low number of companies actively selling on the Internet.
The figures were published last week in a comprehensive national survey which questioned 9,000 UK businesses with 10 or more employees about their use of, and attitude to the Internet and e-commerce.
The E-Commerce Inquiry will be published annually. It was carried out by the government agency, the Office of National Statistics, and defines an e-commerce transaction as the method by which an order is placed.
Sales conducted over all electronic channels in 2000, including the Internet and other "computer-mediated" networks, such as electronic data interchange, reached £161.75bn, or nearly 6% of total UK sales. The biggest volume of transactions was carried out by the financial and insurance sectors, which conducted an estimated £44bn worth of online business, but the figure rose to nearly £80bn when sales over all other electronic channels were included.
Patrick Bossert, head of e-strategy at consultancy KPMG, said the results were encouraging. "Most companies have only been doing e-commerce since last year so it's early days, but considering the volume of transactions going through with the market in its first year, it's very impressive," he said.
Business-to-business (B2B) transactions made up the bulk of the figures, with business-to-consumer (B2C) sales accounting for less than a fifth (about £10bn). The majority was sold by the financial services sector.
But e-commerce is still far from universal. Only 16% of the companies surveyed admitted to using the Internet or other computer networks to make sales, with another 12% indicating that they intended to move into online sales within a year. But 70% of companies said they had no plans to sell online, or through any other electronic channels.
Online purchasing was far more prevalent than sales, with nearly a third of companies buying over the Internet. Online purchases, (excluding the financial sector for which there was no accurate data) amounted to nearly £17bn, or 1.7% of overall purchases, while purchases conducted over all networks reached £118.5bn, or 12.7% of the total. Although 9% of respondents said they expected to begin online purchasing within the next year, nearly 60% said they did not.
Andrew Fowles, group IT director at Reed Exhibitions, pointed out that not all products suit Internet trading. "Selling over the Internet requires significant business process and technology changes, not to mention internal culture changes. But changing takes time, and companies are struggling to adapt to the Internet.
"Companies will only do what their customers want and sometimes customers don't want to be sold to over the Internet," Fowles said.
Recent customer research by Reed Exhibitions has shown that only 30% of US customers want information to be made available through the Internet only, whereas the other 70% want it online and via traditional media.
A limited appetite for e-procurement among companies also emerged in the survey. But, like online sales,e-procurement also requires significant changes to the business process, Fowles added. "We're not all manufacturing companies that buy hundreds of components in order to build the product we sell," he said. "Being a service company, we don't buy very much at all, and the things that we do buy are usually bought through large, long-term contracts. There would be little point in changing our buying processes for that."
The survey explored the types of Internet connection businesses had installed. Not surprisingly, given the row over British Telecom's rollout of high-speed Internet links, the figures revealed that broadband penetration was low. Only 8% of companies had high-speed, permanent Internet access, half of which were companies with more than 1,000 employees. Nearly half the respondents - 46% - still used dial-up modems, while only one third had ISDN connections.
Mark Raskino, e-business research director at Gartner, said that although the government's decision to monitor UK e-commerce activity was a positive sign, the widespread provision of broadband Internet access, particularly to small and medium-sized enterprises (SMEs), would be critical to the success of e-business. "For UK e-business to thrive, SMEs need cheap and easy access to always on, broadband internet connections."
Bossert said the low level of broadband penetration was holding back full-scale adoption of e-commerce activities. "Broadband Britain really needs to happen: it's the major factor holding back the culture change within businesses. If your business is running down ISDN links, you're not going to allow employees access to the Internet - you just won't have the pipe for it," he said.
"As long as business connects itself with bits of string rather than big fat pipes, there's going to be a different attitude to what the Web can deliver. Lack of broadband is stopping the Internet and e-commerce culture growing, but once it's widely available, businesses will feel more motivated to change and employees will be more comfortable with that change."
But not all industry observers see broadband access as integral to the rise of B2B transactions. Nigel Montgomery, director of European e-business at AMR Research, argued that the volume of B2B transactions was not as dependent on high-speed Internet access as in the B2C sector. "The rollout of broadband isn't going to kick-start the adoption of B2B because people are still trying to line up the cost of investment with the value of return," he said. "We're new to this business and there are very few examples of people who have generated a return because it's so early on in the game."
Fowles argued that the lack of broadband access was often just an easy excuse trotted out by companies who were unwilling to change their business processes. "It's not a technology issue, it's a change management issue. Lack of broadband access is not holding [online transactions] back because it's not about speed of response," he said.
"Obviously, faster connectivity is good but in a B2B environment we don't have to have loads of fancy pictures or graphics because we're dealing with professional buyers who know exactly what they want."
The whole issue was about process change within a company, Fowles said. "It's very convenient for companies to say it's holding them back, but I can remove that barrier and then they still don't do it anyway."
In general the report is encouraging. Considering that it is early days yet for e-business the market has matured nicely, particularly in pioneering industries such as financial services.
However, there are plenty of areas where companies, suppliers and government could do better. E-procurement is still more hype than reality and broadband Britain is a long way off. Online business will need to show improvements in key areas.